for people who care about the West

Colorado oil shale gets a second look

Shell Oil hopes pilot project will go commercial

PARACHUTE, Colo. - On top of Cathedral Bluffs, Royal Dutch/Shell is quietly trying to revive one of the West's biggest and most disappointing energy booms. If Shell's scientists and engineers are right, the petroleum wealth locked into oil shale here may, at long last, be profitably exploited.

That possibility is being welcomed warily in northwest Colorado, which still remembers the heyday of the 1970s and 1980s, when the shale reserves here were described as "the next Saudi Arabia." People also remember the crash that followed, as oil firms bolted after collecting tens of millions of dollars in federal subsidies but failing to produce a single profitable barrel of petroleum.

The research project here has been conducted intermittently since 1996 on three small drill pads at 8,000 feet by Shell Exploration & Production Company of Houston, and it is still only a test, says spokesman Rich Hansen. But he adds, "We wouldn't be doing this research if we didn't dream of building a commercial project some day."

Northwestern Colorado has been viewed for a century as a potential oil treasure. By some calculations, the Piceance (pee'-awnce) Basin alone contains 300 billion barrels of recoverable petroleum, equal to 48 percent of Middle Eastern reserves. Yet no one has been able to extract profitably the keragen, a waxy petroleum, from the shale.

In 1974, the first Arab oil crisis sparked a boom here, as oil companies decided shale might finally pay. Workers streamed in. Shale would be mined and heated in large ovens, or retorts, to cook the keragen out, then condensed and refined. The process used enormous amounts of energy and water. New towns were drawn up to house thousands of expected workers. Plans were made to suck up vast quantities of water and to dump vaster quantities of waste rock.

But in the early 1980s, several oil companies canceled their projects. The collapse culminated in Exxon's 1982 closure of the Colony Oil Shale project in Parachute, which threw 2,500 people out of work. Unocal was the last to fold, closing its plant in 1991, despite a federal contract to buy shale oil for $41.50 per barrel, about twice the market rate. No matter how high the price of crude oil went, shale oil always seemed to cost more.

Shell executives think they now will be able to produce shale oil at a cost that can compete with $15-$25 per barrel crude oil. Their proprietary extraction technology uses electricity to heat the oil shale underground. They then pump out the liquid keragen with traditional oil-drilling techniques. This approach still uses water and energy, but not as much as the retorting process, and it leaves a much smaller environmental footprint, Hansen says.

It is too early to say when a commercial production facility might be built here, or how big it would be, and Hansen insists Shell is sensitive to the oil shale boom.

"The boom-and-bust cycle of oil shale is not necessarily a pretty picture," he says. "We're working with community leaders to try to understand what went wrong 20 years ago and what can be learned from that."

Shell is planning to use existing oil pipelines and the Union Pacific Rail line to ship its crude to refineries in Salt Lake City or Denver. The keragen would be a feedstock for gasoline, jet fuel and diesel fuel.

"In the Unocal-Exxon oil shale boom, Parachute was impacted the most and got the least out of it," says Parachute Mayor John Loschke. "I think Parachute is not going to be walked on again."

Loschke lived through the first boom and bust, and says that the town's present growth rate of 3-5 percent annually is plenty. Today his town of 1,200 is a bedroom community for workers in Aspen and Glenwood Springs, and sits across the Colorado River from Battlement Mesa, built by Exxon to house oil shale workers but then sold. It has been turned into a golf and retirement community.

In Meeker, 20 miles northeast of the Piceance Creek project, Mayor Bill Dunham is more optimistic.

"Any time we can get some kind of industry in here and more jobs for people, it helps the economy," Dunham says. "We've got a water system and a sewer system that was built back in those days designed to handle 10,000 people." The town's population is 2,200 now, he says, "and the rest of us are trying to pay for those things."

Agriculture, especially sheep ranching, used to be the number one economy in Rio Blanco County, Dunham says, but that business is hurting. "Energy is the number one industry here."

Sixty-five miles to the southwest, in the city of Grand Junction - which jumped over 100,000 in population in the 1990s as retirees flooded in - Mayor Cindy Enos-Martinez thinks oil shale development must be done right.

"It's going to have to be done in a different manner," says Enos-Martinez. "It hurt a lot of people. Losing everything was really tragic for those people."

Any oil company that wants to get back into the oil shale business had better come to Grand Junction with a plan, Enos-Martinez says.

For now, Hansen is trying to downplay Shell's work. "Every time I talk to a reporter, I get scared he's going to write this is the second coming," he says. "We're not going to buy up every acre here and build a zillion facilities. The real question is how many barrels can you economically recover from this area. Up to now, zero. Our technology works in some (shale) formations and not others. I think from an environmental standpoint, that's a good thing. We think it's responsible to do this slowly and see where it fits."

Hal Clifford contributes regularly to High Country News and Writers on the Range from Telluride, Colorado.